Thursday, December 21, 2017

Trump May Name Stock Market Bubble Crusher as Vice-Chairman of Federal Reserve

Larry Lindsey, a former top economic adviser to President George W. Bush and one-time Federal Reserve governor, is being considered for the Fed vice chair job, reports CNBC.

 He was a Fed governor from 1991 to 1997 and is currently the head of the economic consulting firm The Lindsey Group.

Lindsey was director of the National Economic Council under Bush. He also served in the first Bush administration and under President Ronald Reagan.

But here is the kicker, he has a bent for justifiably throwing cold water over optimistic government forecasts.

Wikipedia correctly reports  (my bold):
Lindsey is famous for spotting the emergence of the late 1990s U.S. stock market bubble back in 1996 while a Governor of the Federal Reserve. According to the meeting transcripts for September of that year, Lindsey challenged the expectation that corporate earnings would grow 11½ percent a year continually. He said, "Readers of this transcript five years from now can check this fearless prediction: profits will fall short of this expectation." According to the Bureau of Economic Analysis, corporate profits as a share of national income eroded from 1997 until 2001. Stock prices eventually collapsed, starting their decline in March 2000, though the S&P500 remained above its 1996 level, casting doubt on the assertion that there was a stock market bubble in 1996.
In contrast to Chairman Greenspan, Lindsey argued that the Federal Reserve had an obligation to prevent the stock market bubble from growing out of control. He argued that "the long term costs of a bubble to the economy and society are potentially great.... As in the United States in the late 1920s and Japan in the late 1980s, the case for a central bank ultimately to burst that bubble becomes overwhelming. I think it is far better that we do so while the bubble still resembles surface froth and before the bubble carries the economy to stratospheric heights." 

Also of note, on September 15, 2002, in an interview with the Wall Street Journal, Lindsey estimated the high limit on the cost of the Bush administration's plan in 2002 of invasion and regime change in Iraq to be 1–2% of GNP, or about $100–$200 billion. Mitch Daniels, Director of the Office of Management and Budget, discounted this estimate as "very, very high" and Defense Secretary Donald Rumsfeld stated that the costs would be under $50 billion. Rumsfeld called Lindsey's estimate "baloney".

As of 2007, the cost of the invasion and occupation of Iraq exceeded $400 billion, and the Congressional Budget Office in August 2007 estimated that appropriations would eventually reach $1 trillion or more.

But the key here is that he wanted to crush the Greenspan bubble. One can only wonder what he thinks about the current stock market, where a change of name from Long Island Iced Tea to "Long Blockchain Corp." causes a stock to climb 200%.


1 comment:

  1. Coincidently going through some of my old Facebook posts and found this topic:

    And let’s not forget that Dick Cheney personally stormed into the office of economist Larry Lindsey, Bush’s top economic advisor, to fire him on the spot for publicly stating that he thought the Iraq War could cost as much as $200 billion (the latest estimate is as much as $6 trillion). Cheney informed Lindsey, the Harvard-trained economist, that Paul Wolfowitz assured him that the war would actually pay for itself, if not turn a profit via oil revenues.

    9/16/02 White House economic adviser Lawrence Lindsey estimates Iraq war could cost $200 billion.

    12/6/02 White House sacks Lindsey over war cost estimates.